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Sample Problem

Sample Problem. Problem 29.1A.

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Sample Problem

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  1. Sample Problem Problem 29.1A

  2. Prepare general journal entries to record each item of cost data given. Use the account titles listed in your textbook. Compute the amount of overapplied or underapplied overhead for the month. Prepare a partial income statement for July. Adjust the Cost of Goods Sold for any overapplied or underapplied overhead. • In July 2007, Orange Plus Co. had the following cost data. • COST DATA • Raw materials costing $74,000 were purchased. • Raw materials costing $65,000 were used: direct materials, $64,500; indirect materials $500. • Factory wages of $47,500 were incurred: direct labor $45,000; indirect labor $2,500. Social security tax deductions were $2,945, Medicare tax deductions were $689, federal income tax deductions were $7,125. • Other overhead costs of $26,265 were incurred. (Credit Accounts Payable.) • Estimated manufacturing overhead costs were applied to jobs in production at the rate of 75 percent of direct labor costs. • Finished goods costing $140,000 were transferred from production to the warehouse. • The cost of goods sold was $89,650. • Sales for the month were $175,000.

  3. The following are the general journal entries dated July 31, 2007 Raw Materials Inventory 74,000 Accounts Payable 74,000 Cost of materials purchased in July Work in Process Inventory 64,500 Manufacturing Overhead 500 Raw Materials Inventory 65,000 cost of direct & indirect materials used in July Work in process inventory (direct labor) 45,000 Manufacturing overhead (indirect labor) 2,500 s.s. tax payable 2,945 medicare tax payable 689 employee income tax payable 7,125 salaries and wages payable 36,741 cost of direct & indirect labor in July Manufacturing overhead 26,265 Accounts Payable 26,265 overhead costs in July Work in process inventory 33,750 Manufacturing overhead applied 33,750 apply overhead at 75% of direct labor costs Continued …

  4. General journal entries continued Finished goods inventory 140,000 Work in process inventory 140,000 cost of jobs completed in July Cost of goods sold 89,650 Finished goods inventory 89,650 cost of goods sold in July Accounts Receivable 175,000 Sales 175,000 sales on credit in July

  5. ORANGE PLUS COMPANYManufacturing Overhead ComputationsMonth ended July 31, 2007 Manufacturing overhead Indirect materials 500 Indirect labor 2,500 other overhead costs 26,265 Total charged to manufacturing overhead 29,265 Manufacturing overhead applied 33,750 (Applied rate is 75% of direct labor; 45,000 x 75% = 33,750) Overapplied overhead for month 4,485

  6. ORANGE PLUS COMPANYIncome Statement (Partial)Month ended July 31, 2007 Sales 175,000 Cost of goods sold 89,650 Less overapplied overhead 4,485 COGS (adjusted to actual) 85,165 Gross profit on sales 89,835

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